Experienced entrepreneur Chandra Rao discusses challenges with dishonest sellers, financial struggles, navigating payment terms, and partnering issues. He shares insights on due diligence mistakes, embezzlement, conventional loans vs. SBA, and exponential business growth in electrical contracting and fiber cabling. Rao reflects on juggling a roll-up, dealing with fraud, and the complexities of acquisitions and financing in the construction industry.
Thorough due diligence and quick acquisition decisions are vital for business success.
Utilizing seller notes and verification processes can protect against potential risks and losses.
Transitioning to a service-oriented approach in electrical businesses boosts customer relationships and revenue generation.
Deep dives
Chandra Rao's Holdco Journey
Chandra Rao's journey into owning a holdco started with acquiring a small SaaS business, leading him to realize that buying businesses with a leveraged buyout model could create wealth. Over a decade, Chandra and his partner completed five acquisitions, reaching a holdco revenue of $12 million with EBITDA of three. Despite facing challenges like dishonest sellers and financial strains, their partnership proved crucial for survival.
Learning from Mistakes in Acquisitions
Chandra reflects on their approach to due diligence and quick decision-making in their acquisitions. The discovery of fraudulent activities by a former partner highlighted the importance of thorough verification processes and the value of utilizing seller notes to protect against potential risks and losses.
Lessons from Managing Electrical Businesses
Operating in the electrical construction sector, Chandra's businesses, like Gopher and Miller Electric, face unique challenges with working capital constraints and cultural influences on the team dynamics. The focus on transitioning to a service-oriented approach and enhancing customer relationships underscores the evolving landscape of electrical businesses.
Navigating Business Partnerships and Resilience
Chandra's experiences underscore the significance of vetting business partners for cultural alignment and integrity. Despite setbacks and betrayals, maintaining a positive outlook and learning to let go of anger are crucial for personal growth and sustaining a resilient entrepreneurial spirit.
Factors Affecting Electrical Service Business Margins
The podcast discusses how high licensing requirements impact the margins of electrical service businesses compared to HVAC or plumbing services. Licensing mandates necessitate journeyman electricians for service work, leading to higher costs for consumers, making it challenging to maintain profit margins. While focusing on service over construction provides smoother revenue generation and reduces cyclical economic impacts, the stringent terms of construction job payments create challenges.
Expansion into Underground Construction and Fiber Splicing
The episode highlights the acquisition of an underground construction company and a fiber splicing business, detailing a strategic move to diversify from electrical services. The acquisition, driven by federal, state, and local broadband investment, focuses on rural fiber development expanding to tier two and three cities. Despite initial challenges and industry distinctions between construction and technical splicing work, the businesses have shown significant growth in revenue and EBITDA, showcasing successful capital allocation and operational enhancements.
